A couple of questions. Firstly, ma'am, on the HFC growth, a question to Pankaj, sir, we have seen a robust growth of 62% probably Y -o-Y basis. So what are the potential drivers and so where we should see the growth over the medium term? What could be the s ustainable growth? And what are the key drivers for such a robust growth? Firstly, on that, so I'll ask together or separately? ABCL – Q3 FY25 Earnings Call Page 12/22
You may please go ahead, Chintan, you can give all your questions, and we'll answer them one by one.
Yes. Secondly, on the PCR in the NBFC segment on Stage 3, it is around 45.6%. So probably it is stable Q -o-Q, but seems to be declining. So now I think we are moving to the secured segment, so how should we see this PCR going ahead? So what could be the stable number there? And also the Stage 2 has seen some inch up. So any thoughts there? And then it is on the ROA front for the NBFC piece. So it is 2.1% ROA. So if you look at the margins, over the last 1 year margins have compressed around 90 bps Y-o-Y since probably we are moving to a secured mix versus the unsecured portfolio and running down the unsecured piece. But then the credit cost has not -- has declined only like around 10 bps Y - o-Y? So the ROA has seen a massive hit. So what are the levers probably to expand? And so apart from starting the growth in the personal consumer segment are there any other levers? How should we see the ROA over the medium term? Yes, that's it from my side.
Chintan, Pankaj here. I'm taking the question on housing finance and then I will leave Rakesh to handle the next question. I think if you see the disbursement, this is a culmination of several consistent quarters on growth that we've seen in disbursement. So this quarter, we saw 18% Q-o-Q disbursement. But if you see the last 6 to 7 quarters, you will see a similar trajectory. Now of course, the trajectory has even more accelerated. So it's a pretty consistent approach in growing the disbursements. It is coming on the back of 3 or 4 important things. I think over the last calls that we've had for the quarters, I've been speaking about it, but I just reemphasize those. I think over the last 18 months to 24 months, we have made investments in widening our distribution. So the number of people that are there in sales , operations and the entire structure has been strengthened quite meaningfully. That, of course, by creating capacity is leading to high disbursements. Second is we have invested quite significantly in digital platforms, both in terms of our sales processes. And we have the best -in-class customer relationship management that we're using to ensure that our sales processes are best in class. The third is we were also speaking about Finverse which is an end -to-end platform that we have launched from prospecting to disbursements. And I'm very happy to share that not only is Finverse being used by our teams for sourcing applications, even our channel partners are also directly logging in our business on Finverse. That is clearly helping in decongesting the entire file flow and is giving face time for our teams ABCL – Q3 FY25 Earnings Call Page 13/22 to focus on meeting customers and also channel partners. So productivity is also one thing that we have seen significant growth, that's both on capacity and also productivity. The last thing that I want to share is that, we've been also speaking about the contribution of our disbursements coming in from the ABC and ABG ecosystem. And in this quarter, you would have noticed that 13% of the disbursements actually are coming in fro m the ABC and ABG ecosystem. So there are a huge set of opportunities which are coming into through ABCD, our ABC Select partners and ABG group ecosystem. I think with a combination of the digital platforms, and also the capacity that we've been able to bring. I think all this put together is resulting in growth across the affordable, prime, and also developer finance business for us. When it comes to the guidance, I think we've been speaking that we will be seeing similar trajectories of growth in the next few quarters, and that is where we are. I'll leave it to Rakesh for the next question.
So Chintan, your first question was on PCR that year -on-year, the PCR has come down by 3%-4%. That's primarily on the backdrop of a change in the product mix. If you see secured book has gone up from 67% to 74%, and that is the result that PCR is at 46%. So this PCR is quite stable. We have of 74% or about 3/4 of our loan book is secured by collateral, real estate collateral, securities, and all and that's the reason even in the unsecured business, we have CGTSME guarantee as well. So that's the reason our PCR looks very, very comfortable. Your second question was on Stage 2. That Stage 2 has gone up marginally q-o-q. If you look at year -on-year, it has come down. But yes, compared to the last quarter, it's gone up marginally. But by end of Jan, we have been able to pull back all these loans which had become stage 2. As you know, the definition of stage 2 is 30 plus. So even a customer goes up to 31, 32 days, it moves into Stage 2, it all has been pulled back. The third question was on margin in terms of that we have seen 28 basis points lower margin compared to the last quarter and 90-odd basis points compared to last year. This is, Chintan, again on the backdrop of change in the product mix. Our yield and NIM are a function of product mix. As I mentioned earlier, secured business has gone up from 67% to 74%. Also, if you see our personal and consumer business, which we had started in terms of tightening and dialing down post the RBI intervention on small ticket unsecured loans and some bit of partnership that's now started stabilizing, and we would expect that to grow in the next couple of quarters. So that should help us. Also on the unsecured business, which has similar yields and margin, that piece also, if you see, has gone up, it's grown 12% year-on-year and 2% quarter-on-quarter. That should also start scaling up in the next couple of quarters. So that should help to i mprove and stabilize our margins. ABCL – Q3 FY25 Earnings Call Page 14/22 Your question on credit costs. Credit cost is in the range as we had always guided that it will be below 1.5%. It's at 1.36%, so it's in the range. And yes, over a period of time, we will like to see that credit costs remain stable, margin expanding. That should help us improve our ROA.
Sure. Thank you for a very detailed one. So probably, but any sense on the product mix, if I may ask, what would be the product mix from 67% to 74%, we have moved to secure, so any ballpark number which we are looking beyond which we won't move the secured mix or it could -- there is no such number in mind, yes?
So if you look at today, our personal and consumer has come down from 19% odd to 13%. We would like to grow it back to 18%, 20%, not immediately, but in the medium term. And also on the business loan-- unsecured business segment, if you look at, that's grown 12% year-on-year. We would like to grow that further. And so that's how we are really looking at managing the margins, Chintan.
And so any ballpark number on the margin? So could it decline further from here on? Or should we expect some stability around current levels of 6%? Yes, that's the last one.
I think we should see stability around this number before it improves.
Next question is from Anuj Singla from Bank of America.
So I'll start with the housing finance business. So a question for Pankaj, please. Firstly, if I look at the Y-o-Y growth, a lot of that has been driven by the non-housing segment LAP and construction finance, housing is down by around 850 basis points as pe r my calculations to 57%. Can you give us some sense of where this can settle down and you also have that criteria for the principal business. Where are we in that? And how much scope we have for reducing the housing proportion in the overall mix?
Anuj, Pankaj here. At the end of Q3 FY '24, if you look at what we have also listed in the slide, we had a 65% housing. It is now showing at around 58%. So the observation is -- you're right on that side. Having said that, I think like we also maintained -- we are a full stack player, who is operating in the housing, non-HL and also developer finance portfolio, all the 3. ABCL – Q3 FY25 Earnings Call Page 15/22 So I think opportunities existing in all the 3, and we've been able to successfully ensure that we filled a presence across all the 3 segments. Having said that, there are 2 things that we'll have to keep in mind is, first, the quality mix across segments, which is appropriate. I think the numbers speak for themselves on the portfolio quality that we have been able to get. So we are very, very conscious and while the earlier question was being asked, disbursements have grown. But I think we are very focused that we use analytics right across the chain, right from onboarding. When you look at the onboarding bureau scores, the re are also bureau scorecard which gives us a very good indication of the criteria. Also, we use data analytics on delinquency management and flows. I think your question on regulatory, what are the percentages for housing loans, the minimum threshold is 50%. Overall, housing including retail construction finance, the criteria is 60%. On both the criteria, I think we are comfortable right now. In housing loans, we are in that range of about 53% to 54% and well above the 60% mark overall. So I think the opportunities are still there. But at the same time, we have to keep looking at both HL and LAP and across all the segments to see the growth trajectory.
So will some mix change materially from here or it can settle down in the same level which we have seen for third quarter?
Because 50% is anyways the threshold. So we would want to remain in that 53 to 55 % kind of a range.
Secondly, can you give us some sense of the margin risk from the rate cut, if it comes through on the liability side, what kind of flexibility you have on the variable costing and on the asset side as well?
So overall, if you see on the side of the asset, 95% is variable, 5% is fixed . On the side of liability, 39% is fixed and 61% is variable. Of the fixed, broadly 6% is NHB and 33% is NCD. That is the broad breakup of the liability. But currently, if you see and you are there in the market, you will know that there is a wide spread between the term loans and the NCDs. So there is clearly a difference ins at which we are borrowing on NCD versus the term loans. That's not with us, but with the market. So I think we are fully placed on that side, and we've been able to factor that when we are managing our assets.
Okay. Second question is on the life insurance business, to Kamlesh. So you did talk about changes on the distribution commission side as well as product structure because of the ABCL – Q3 FY25 Earnings Call Page 16/22 surrender value regulations. Can you give us an idea if there is some impact of that surrender value regulation in this quarter margins as well? Or were you able to recoup everything out of that? And when we look at the product level margins because of the new products, which you have launched, have you changed the IRR? Or is there a significant change in the product level margins, which have happened after the surrender value regulations are put in play?
I'll answer the question in 2 parts. So obviously, when the new surrender regulations came in, all products had to be refiled and relaunched on 1st of October. So there would have been some timing mismatch between, first ensuring all the products are on th e table and then, of course, whatever we have to do with the surrender regulation incorporation. So some loss of time would have got incorporated in that, which is why I said that quarter 4 will look better because some bit of that we would have lost in quarter 3 from a timing point of view. So it will only get better. I must say that margins have gone down on account of both the impact be on surrender regulation is changing and also on guarantee products, the G -Sec is lower than what it used to be, that impact also comes in. But for the second one, appropriate reduction in customer IRRs have been passed on again during the quarter. And again, there would have been some timing loss in that process in the quarter, which is like fully established right now for the quarter that we speak about, which should be in Q4. So broadly on surrender, fully taken care of , on account of G -Sec incorporated through the quarter, and you will see the expansion of margin story that I would saying will fully reflect in Q4 of this year, apart from the size of the volume that we have.
So is it possible to quantify the independent impacts like for the surrender value, if it were not to be there, what could be margins for 3Q would have been higher by, let's say, 15, 20 basis points or whatever the number is. And similarly, for the repricing impact on the non-par side, is it possible to quantify, these 2 in independent buckets?
Possible. But like I said, we'll have to get through every period of 1 month because, like I said, when 23 products get launched, you have to launch that first before deciding the drop in the rate, but I can reach out to you separately for details.
Next question is from Abhijit Tibrewal from Motilal Oswal.
First question is on NBFCs. Two sub questions there. First one is, if I look at our presentation, there has been a deceleration in the disbursements in this quarter. So I remember hearing in my opening remarks, we've been talking about calibration in our unsecured business areas ABCL – Q3 FY25 Earnings Call Page 17/22 and growing our secured business. So -- but if I look at the segments and presentation, I see there is really broad-based deceleration in this quarter. So how should we read that? And the related question here on NBFCs again is that there have been NBFCs who reported earlier during the quarter, and we've been talking about completely dialling down their partnership businesses. So I mean, I just wanted to understand how are we thinki ng about our basically consumer loan business that we do through partnerships? That is on NBFCs. I have one more question. The second one is on the ABCD app. Again, I see on your slides, you've talked about introducing credit line and UPI from the next quarter. So I just wanted to understand if you can give some color of how we are thinking about that product? And lastly, out of our disbursements in the HFC in the third quarter and 9 months, what proportion of disbursements came from BTs? Those are my questions.
From where? Sorry?
Can you repeat the third part? Third question, can you repeat?
The balance transfer, BTs, what proportion of disbursements came from BT?
So Abhijit, the first question on disbursement coming down in quarter 3. As you know, there are different cycles in terms of the business through the year. So yes, quarter 2 was stronger. If you compare year -on-year. I think primarily de-growth is coming from personal and consumer segment, which is 47% down year -on-year. Again, quarter 4 will be better. So we should be able to catch up on disbursements. So that's your first answer. On consumer loans through partnerships, as I mentioned in my opening remarks, we have built capability in terms of sourcing through branches. So now we have almost 450 branches through which we sell consumer and MSME business. Also, we have built our own digital journeys for consumer loans, which is our direct consumer journey. So that's another piece which we are really building up and we have ABG ecosystem is another one through which we are trying to build scale. And fourth is the ABCD app. So that's another platform through which we are sourcing and on the MSME side, Udyog Plus. So all of these 4-5 things is what will help us in terms of driving our consumer and small ticket MSME loans. So clearly, that's how the strategy is to own the customer, own the journey and clearly end -to-end ownership of the customer and the journey. ABCL – Q3 FY25 Earnings Call Page 18/22
I will take the second and third question, Pankaj here. So the first question answers a bit nuance, credit line on UPI I'll just explain that you. When the customer opens an ABCD app and he's creating a handle, the handle is your mobile number@abcdicici. Currently, there are 2 options which come in for the customer. One is that you link your bank account. So you link your existing bank accounts which are there. That's one payment mode. The second is, of course, if you have got a RuPay credit card, then you are able to connect the RuPay card. What credit line UPI means is that currently, credit line on UPI is live with all the issuing banks. So if you are a customer and for your respective account, if a bank has given you a credit line on UPI, then when you are creating the UPI handle you can use it. The first option is bank account, second option could be RuPay credit if you have it and the third option will be the credit line, which has been given to you by your issuing bank which you can link. Once you link it on the ABCD app, then you can make payments from all the 3. So that's the first part of the story. So we'll be going live with that functionality. So if, let's say, a customer is an ICICI Bank customer, example, and he's already got a credit line for ICICI Bank and it's also having the credit line facility with UPI. When he opens up the ABCD app, he wil l be able to -- he or she will be able to link up the credit line. That's one. Second is we are also going one step further. There could be some customers who may not have the credit line from the bank. It's not preauthorized. So working with the banks to ensure that this credit line can actually go that of the bank, and they can pro vide a credit line. And then instantly, we should be able to move it up on credit line on UPI facility. Right now credit line on UPI is not there for NBFC. In time to come, we've also put in our request to NPCI to make sure that also gets done. When that happens, then that line could also be an ABFL line, which could make this complete in-house. Coming to your third question, which is BT in. So like you're rightly asking, we also track disbursements which come to us, which is the first time and also the BT. So probably a BT disbursements, that number between 8% to 10% of the total disbursement that we do.
Can you repeat that, please? What was the BT in?
The credit disbursement that we do, that proportion of BT in is between 8% to 10% of total disbursements that we do.
Next question is from Avinash Singh from Emkay Global Financial Services.
A couple of questions. The first one on your lending businesses against what I want to understand I mean if I look from the profitability perspective and go back, say, 4 quarters. In ABCL – Q3 FY25 Earnings Call Page 19/22 the NBFC, you were kind of delivering nearly 2.4%-odd kind of ROA. Now at this juncture, of course, that unsecured business winding down had an impact. But today, kind of you are at a 2.1%-odd ROA. Now from here to, say, 2.5% because I recall even at 2.4%-odd the ambition was to further improve eventually, I mean, more towards 3%. But now from this 2.1%, if you are aiming for, say, 2.5% -odd, I mean, how this road is going to be because if I look from interest rate perspective, by and large, I mean, on the asset and liability side, fixed and floating are matched. So I mean, the rate cut cycle is also not going to help. So rather improvement has to come from, I mean, largely, I would expect from the margins because on the opex side, you are already reasonably good. So how is this journey and how long will this take again, say, maybe 2.1% to 2.5% journey. That's on the NBFC side. On HFC side now, of course, I mean you have been investing a lot in capacity building, and that is delivering growth, but that is also leading to sort of a currently opex ratio being elevated. So at what scale, what time line, I mean, you would expect and what is that optimal your opex to AUM or cost to income ? I mean, currently, you are running more closer to 2.9% kind of opex to AUM and for HFC to be kind of a reasonably, I would say, respectably profitable you need to significantly lower it down. So what could be the time line, at what scale probably you would be hitting that and what is that desire of opex to AUM? These are sort of a question for lending. And just one data keeping kind of a question, if you can just provide some color on the ARC t ransactions that you have done in this quarter in NBFC. I mean what was the underlying asset, what sort of recoveries, cash or like what the structure with ARC based?
First question was on ROA, come down to 2.1% from 2.4%, and that's primarily a result of the margin compression, which we spoke earlier. As we change the product mix and improve our disbursement and growth in personal and consumer and also the MSME unsecured, I think that margin expansion should happen. Also, if you look at the overall product mix at this point in time, almost 74% - 75% is secured. That should also help us at least in the near future in terms of bringing down the credit cost. So I think these are the 2 levers, which should help us to go from 2.1% to 2.4% to 2.5%. So that's a question you had on NBFC.
Yes. I'll go next. So I think the question that you had raised was what is the long-term -- how do we see the ROAs going up? So if you see the numbers, I think currently, the NII for us is 4.94%. And as you had mentioned, the opex to average loan book is 290 basis points and credit cost is about 19 bps . I think we've been speaking about this and to your question at what capacities the operating leverage will come in , when t he proportion of new disbursements to the overall book keeps reducing because the book becomes larger , the current opex to average loan book, which is 2.8% is bound to get to in the range of somewhere between 1.6% to 1.7% in the next 18 to 24 months, which is about 110 to 120 basis points reduction. ABCL – Q3 FY25 Earnings Call Page 20/22 We also expect that the NII which is now 4.94% to be in the range of between 4.6% to 4.7% due to competitive intensity and cost of borrowings changing a bit . So if that is the number the NII-4.65%-4.7%, and 165 to 170 basis points is the opex with a similar kind of a credit cost, the ROA post tax will be in the range of between 2% to 2.1%. That is the guidance, probably that we are working towards. And those numbers should get achieved between the next 18 to 24 months. That is where we are on this. I think the growth I already spoke, about the consumer trajectory of growth. So the next 18 to 24 months where the book size will be one can estimate that.
On the ARC front, there's no new transaction we have done. The profitability is due to the increase in the net asset value of the assets we are holding. So that's the reason for the profitability. Otherwise, we have not done any new transaction in Q3.
Next question is from Punit Bahlani from Macquarie Capital.
Mainly on the PCR bit, you said that because you are going to -- sorry, since you're going into a secured mode, PCR is low. But as we plan to expand our personal loan business, is it fair to assume we'll be adding back towards the 50% PCR level? Or what's the plan there? And accordingly, should we bake in maybe some 10 bps to 12 bps increase in our credit cost? When I look at the unsecured business, the Stage 2 and Stage 3 has increased by around 20-30 bps. So what's -- like are there any forward flows? Is there any cause of concern here in this business? And thirdly, on the overall Stage 2 -- like Stage 2 has increased, but the Stage 3 has declined. So while you clarified that Stage 2, you have managed to pull it off in January. But is the Stage 3 decline because of higher write -offs? Or is it any other re ason? Yes, those are my 3 questions.
So first question on PCR, when we grow consumer and personal loans, whether the PCR will go back to 50%, see the PCR as an outcome of the ECL model. With the unsecured business growth, the PCR will grow. So to answer your question is that if the personal and consumer and unsecured businesses grow, PCR will grow. The second question which you had on the forward flow of the unsecured business, so if you look at the personal and consumer, that has been quite stable in spite of book not growing and de-growing I think that is quite stable, both Stage 2 and Stage 3. On unsecured business, there has been a marginal increase in Stage 2 and Stage 3 . The forward flow in that segment is anywhere between 40 crores to 60 crores on a quarterly basis. And last quarter also, the forward flow is 50 crores . So there is nothing new or nothing ABCL – Q3 FY25 Earnings Call Page 21/22 worrying which we are seeing. It's because of the denominator effect, you are seeing the percentages looking slightly higher.
And since this is credit guaranteed like what is the timeline? I think last quarter, we had highlighted we get the recoveries in 12 to 15 months. Is that also may be a reason that the recoveries once they come in, then you account and the number swings down, something like that?
Yes. So this is a question about cash flow of SIDBI and when and how it releases the funds, In the new financial year, I think there will be release of funds . But to answer your question, there can be a question on the cash flow. It's only a timing issue.
Thank you very much. Due to time constraints, we'll have to take that as the last question. I would now like to hand the conference over Ms. Vishakha Mulye for closing comments.
Thank you, everybody, for joining us. If there are any more questions, please feel free to reach out to any of us, and we look forward to answering all your questions. Thank you so much.
Thank you very much. On behalf of Aditya Birla Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
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